PM happy U.S. has scrapped border tax
The Trump administration’s decision to drop a proposed border tax removes the threat of a trade war just as Canada, Mexico and the U.S. prepare to launch negotiations for a new North American Free Trade Agreement, relieved Canadian business leaders say.
But it also potentially reduces the pressure on Prime Minister Justin Trudeau to slash Canada’s corporate tax rate to keep pace with a promised steep reduction in the United States.
The border adjustment tax was intended to offset the massive revenue hole President Donald Trump’s planned comprehensive tax reform — including cutting the corporate tax rate to 15 per cent — will blow in the American budget.
“With this taken out of it, it will be interesting to see what this means for the overall package, what is the size of the corporate tax cut, for example, that’s been discussed,” said Brian Kingston, the Business Council of Canada’s vice-president of policy, international and fiscal issues
Kingston added that a dramatic reduction in American corporate taxes, “does create competitiveness implications for Canada.”
“So, if they went to 15 (per cent), which is very ambitious, you could see a situation where the Canadian government would have to start thinking about how we respond to make sure that we don’t lose investment mandates to the south.”
American officials said Thursday they’re “confident” a tax on imports is no longer needed to pay for broader tax reform. But privately some Canadian business leaders believe the decision to scrap the border tax means the promised reductions in personal and corporate taxes will have to be scaled back.
Little wonder then that Trudeau, whose government is already awash in red ink and could ill-afford having to match a U.S. reduction in corporate taxes, expressed satisfaction Friday that the border tax has been scratched.
“There is no economic relationship anywhere in the world like the one between Canada and the United States and that needs to be protected,” Trudeau said.
“The border adjustment tax would have been a serious impediment to trade with Canada and we’re glad that it’s not being moved forward with.”
Perrin Beatty, president of the Canadian Chamber of Commerce, said unilateral imposition of a border tax “would have been a very destructive action to take that would have precipitated a trade war” just as negotiations to modernize NAFTA are set to begin on Aug. 16.